AT&T Sets U-verse, 4G LTE Upgrades; Stock Falls

One part of AT&T's (T) $14 billion "Project Velocity IP," a network upgrade announced on Wednesday that sent shares down, will be upgrading and expanding its U-verse services.

AT&T upgraded roughly half of its residential customers to U-verse TV and high-speed Internet services in the mid-2000s.

But cable TV companies quickly surpassed the best U-verse broadband speeds of about 24 megabits per second. Cable leaders Comcast (CMCSA) and Time Warner Cable (TWC) have been grabbing broadband market share as a result.

With Project Velocity IP, AT&T aims to quadruple broadband speeds to up to 100 Mbps, in line with top cable offerings. AT&T also aims to expand U-verse's availability to more than 33 million homes, up from 24.5 million now.

At its annual analyst conference in New York on Wednesday, AT&T said it's giving up on selling or spinning off phone lines in rural areas. Instead, AT&T says it will build out its 4G wireless data network, which uses LTE (long-term evolution) technology, in rural areas that lack fixed-line digital subscriber line (DSL) service.

AT&T also plans to speed up its 4G build-out in urban markets to reach 300 million people by the end of 2014, about 20% more than originally planned.

AT&T estimates capital spending will grow to $22 billion each year through 2015, roughly 15% over 2012's projected level, as it invests in wireless and wireline upgrades.

The company also said it would increase its annual dividend by 2.3%. But shares sank 3.4% on Wednesday.

AT&T told analysts it expects mid-single-digit EPS growth over the next three years, below analyst estimates. After 2015, AT&T says EPS growth will pick up because of its investments.

AT&T is "making the right long-term strategic moves" by upgrading U-verse and "stepping on the gas on LTE at same time," Macquarie Capital analyst Kevin Smithen told IBD via email.

But he says the stock will be pressured near-term as "EPS, free-cash flow and buyback expectations are recalibrated lower."

Verizon Communications (VZ) spent some $24 billion building out its FiOS service, which brings fiber-optic wiring into 17 million homes. AT&T took a less costly approach that mixed fiber and upgraded DSL wiring.

Investors had feared since U-verse was announced in 2005 that it would be a "multi-step project with further investment required to increase speeds ...," Nomura analyst Mike McCormack said in a report.

Verizon has sold off much of its assets in rural areas. Analysts say AT&T faced more hurdles selling rural lines because they were scattered in many states. AT&T will seek regulatory approval to convert its wireline network to all-IP technology, ending copper-based transmission. Approval could take years in some states.

Call it U-verse 2.0.

One part of AT&T's (T) $14 billion "Project Velocity IP," a network upgrade announced on Wednesday that sent shares down, will be upgrading and expanding its U-verse services.

AT&T upgraded roughly half of its residential customers to U-verse TV and high-speed Internet services in the mid-2000s.

But cable TV companies quickly surpassed the best U-verse broadband speeds of about 24 megabits per second. Cable leaders Comcast (CMCSA) and Time Warner Cable (TWC) have been grabbing broadband market share as a result.

With Project Velocity IP, AT&T aims to quadruple broadband speeds to up to 100 Mbps, in line with top cable offerings. AT&T also aims to expand U-verse's availability to more than 33 million homes, up from 24.5 million now.

At its annual analyst conference in New York on Wednesday, AT&T said it's giving up on selling or spinning off phone lines in rural areas. Instead, AT&T says it will build out its 4G wireless data network, which uses LTE (long-term evolution) technology, in rural areas that lack fixed-line digital subscriber line (DSL) service.

AT&T also plans to speed up its 4G build-out in urban markets to reach 300 million people by the end of 2014, about 20% more than originally planned.

AT&T estimates capital spending will grow to $22 billion each year through 2015, roughly 15% over 2012's projected level, as it invests in wireless and wireline upgrades.

The company also said it would increase its annual dividend by 2.3%. But shares sank 3.4% on Wednesday.

AT&T told analysts it expects mid-single-digit EPS growth over the next three years, below analyst estimates. After 2015, AT&T says EPS growth will pick up because of its investments.

AT&T is "making the right long-term strategic moves" by upgrading U-verse and "stepping on the gas on LTE at same time," Macquarie Capital analyst Kevin Smithen told IBD via email.

But he says the stock will be pressured near-term as "EPS, free-cash flow and buyback expectations are recalibrated lower."

Verizon Communications (VZ) spent some $24 billion building out its FiOS service, which brings fiber-optic wiring into 17 million homes. AT&T took a less costly approach that mixed fiber and upgraded DSL wiring.

Investors had feared since U-verse was announced in 2005 that it would be a "multi-step project with further investment required to increase speeds ...," Nomura analyst Mike McCormack said in a report.

Verizon has sold off much of its assets in rural areas. Analysts say AT&T faced more hurdles selling rural lines because they were scattered in many states. AT&T will seek regulatory approval to convert its wireline network to all-IP technology, ending copper-based transmission. Approval could take years in some states.

"We're going to have to see 21st century regulation for 21st century investments like this," CEO Randall Stephenson told analysts.

The Federal Communications Commission will study AT&T's proposal."As we review AT&T's filing, we will focus on driving the virtuous cycle of private investment and innovation in the broadband ecosystem, promoting competition, and protecting consumers," FCC Chairman Julius Genachowski said in a statement.

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02/26/2015 04:07 PM ET

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